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Outer Continental Shelf, 1976: Leasing Legislation (3)
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Outer Continental Shelf, 1976: Leasing Legislation (3)
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The original documents are located in Box 33, folder "Outer Continental Shelf, 1976:
Leasing Legislation (3)" of the Glenn R. Schleede Files at the Gerald R. Ford Presidential
Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
ACD
FIL OCS
ASSOCIATED GAS DISTRIBUTORS 1800 M Street, Suite 700, N.W., Washington, D.C. 20036 202-872-3890
September 23, 1976
SUPPLIERS OF GAS TO
CONSUMERS OF THE
EASTERN SEABOARD
Atlanta Gas Light Co.
Bay State Gas Co.
The Berkshire Gas Co.
Boston Gas Co.
Bristol and Warren Gas Co.
The Brooklyn Union Gas Co.
Cape Cod Gas Co.
GERALD FORD LIBRARY
Central Hudson Gas and
Electric Corp.
City of Holyoke, Mass., Gas
and Electric Dept.
City of Westfield Gas and
Electric Light Dept.
Commonwealth Gas Co.
Concord Natural Gas Corp.
The Connecticut Gas Co.
I am writing, at the suggestion of
to
Connecticut Natural Gas Corp.
Consolidated Edison Company
bring to your attention recent Congressional actions on the
of New York, Inc.
Elizabethtown Gas Co.
OCS bill, S. 521, which, in my opinion, have put to rest
Fall River Gas Co.
Fitchburg Gas and Electric
many, if not all, of Secretary Kleppe's concerns with the
Light Co.
legislation as expressed in his letter of June 8, 1976, to
Gas Service, Inc.
The Hartford Electric Light Co.
Mr. Rhodes. It is my understanding that the Secretary
Haverhill Gas Co.
Lawrence Gas Co.
detailed nine specific problems. I hope the following
Long Island Lighting Co.
Lowell Gas Co.
analysis will be helpful to your evaluation of the present
Manchester Gas Co.
state of those issues.
New Bedford Gas and Edison
Light Co.
New Jersey Natural Gas Co.
New York State Electric &
First, it is claimed that citizen suit provisions
Gas Corp.
North Attleboro Gas Co.
will broaden the chance for nuisance litigation. The bill
North Carolina Natural
Gas Corp.
does provide for citizen suit procedures. However, these
Northern Utilities, Inc.
procedures are the exclusive remedies for certain citizen
The Pequot Gas Co.
Philadelphia Electric Co.
actions, e.g., challenges to leasing programs, exploration,
Philadelphia Gas Works
Piedmont Natural Gas
development and production plans. Under current law, a wide
Company, Inc.
Providence Gas Co.
variety of legal remedies would otherwise be available to
Public Service Company of
citizens. Moreover, section 23 (a) (1) (A) would authorize
North Carolina, Inc.
Public Service Electric and
citizen suits against governmental agencies only to the
Gas Co.
Rochester Gas and Electric
extent permitted by the eleventh amendment. I think that
Corp.
South County Gas Co.
the net effect of these provisions will be to reduce citizen
Southern Connecticut Gas Co.
suits.
Tiverton Gas Co.
UGI Corporation
Valley Gas Co.
Washington Gas Light Co.
Second, objection was made to "forcing use of new,
untested bidding systems.' The fact is that all but one of
the "new" systems have been in use for years by States and
many foreign countries. Indeed, the United States is the
only country that places virtually total reliance upon the
cash bonus bidding system, which, at least, results in an
inefficient utilization of capital and dimunition of competi-
tion. The point is that the S. 521 alternatives are not
"new" or "untested." The reason the bill requires the
Secretary to use alternatives to cash bonus bidding, is
clear. Since 1953, Interior has had the option of royalty
bidding, but that system has been used only once, in 1974 on
10 tracts. If alternatives are not mandated, cash bonus
will remain the order of the day ad infinitum.
Third, it was alleged that lease cancellation
provisions were "vague." A reading of those provisions in
S. 521 shows that this problem has now been corrected by
very specific language. See S. 521, sections (a) (2) and
25 (g), (i).
Fourth, concerning the problem of revealing
proprietary data to States where confidentiality could not
be assured, S. 521 now specifically provides that "The
Secretary shall prescribe regulations to (1) assure that the
confidentiality of privileged information will be maintained,"
and that "no such information will be transmitted to any
affected State or any Regional Advisory Board unless the
lessee, or the permittee and all persons to whom such
permittee has sold such information under promise of confi-
dentiality, agree to such transmittal." S. 521, section
26(c).
Fifth, it was stated that the bill gives "Governors
a veto over leasing where national defense or overriding
national interest is not involved." Assuming that this
criticism may have been correct as to some version of the
OCS bill, the conferees have now settled it to the contrary.
Section 19 explicitly states that the Secretary's determina-
tion that a Governor's or Advisory Board's recommendations
are not consistent with national security or overriding
national interests "shall be final and shall not, alone, be
a basis for invalidation of a proposed lease sale or proposed
development and production plan unless found to be arbitrary
or capricious.
Sixth, the conferees have also resolved the
criticism that the legislation creates confusion by assign-
ing regulatory responsibility for the same duties to as many
as three agencies at the same time. See September 20, 1976,
Cong. Rec. at page H 10608 (Explanation of amendment 21).
Seventh, review by the Attorney General and/or FTC
before issuance of a lease is still required. However, it
should be noted that virtually identical provisions in
several other statutory schemes have not resulted in signif-
icant delays.
Eighth, the joint Federal/State leasing procedures
are still in the bill. However, these are in no way counter-
productive measures and do not give States "control" over
any Federal offshore lands. The procedures simply create a
mechanism for Federal/State cooperation for offshore areas
where the location of geological structures indicates that
GERALD FORD LIBRARY
drilling authorized by one governmental body without coordi-
nation with the other could result in "drainage" of resources
from lands of the governmental entity that had not yet
authorized similar drilling. The provision only requires
the Secretary to offer the Governor of the relevant State
the opportunity to lease such properties jointly. And, if
the Governor accepts the offer, Federal laws and regulations
would control. If the Governor declines the offer, the
Secretary may go ahead with leasing as usual. S. 521,
section 8(f).
Finally, it appears that the Secretary opposed the
requirement that prelease exploratory drilling permits be
issued. This objection was taken because the provision
"opens the door to Federal takeover of exploration on the
OCS." Although the bill does require the Secretary to seek
qualified applicants from private industry to conduct
exploratory drilling at least once in every frontier OCS
area, the House report on H.R. 6218 (House number for S.
521) makes it very clear that what is envisioned is the
drilling of a stratigraphic test well - a procedure which
has been used in the past under existing law. You may
recall that this type of "exploratory work" was done on the
Atlantic Shelf earlier this year by an oil and gas industry
consortium of 31 companies. In any event, there is no
authority whatsoever in the bill for the Federal government
to go any farther, i.e., develop and/or produce the resources.
I should add that there are several more favorable
features to S. 521, but, unfortunately, the constraints of
this communication do not permit this presentation here.
One item, for example, that has received strong support from
coastal states, is the oil spill liability provisions of
Title III. If I may be of further aid to you regarding S.
521, please do not hesitate to contact me.
Very truly yours,
Frederick Moring
Counsel for
Associated Gas Distributors
FORD i LIBRARY 038870
FILE PERM
REVIEW S.521
TEMP
OCEAN INDUSTRIES
DATE: 9-23-76
NATIONAL ASSOCIATION
NATIONAL OCEAN INDUSTRIES ASSOCIATION
1100 Seventeenth Street, N.W.
Washington, D.C. 20036
WHITE PAPER
RE: NOIA'S POSITION ON S. 521
AMENDMENTS TO THE OUTER CONTINENTAL SHELF LANDS ACT
S, 521 -- OUTER CONTINENTAL SHELF LANDS ACT AMENDMENTS OF
1976 -- MUST NOT BE APPROVED,
APPROVAL OF S. 521 WILL:
Deprive the American people of 3.1 billion
barrels of domestic oil by 1985 at a value
of $64.5 billion.
...
Create deficit of $19 billion annually in
America's balance of payments.
Increase imports to 64% of consumption by 1985.
Make Americans pay $136 billion per year,
GERACD FORD LIBRARY
by the end of 1985 for foreign oil.
Greatly increase inflationary pressures.
Decrease exploratory oil and gas drilling
offshore by 40% within two years.
...
Idle at least 31 more movable drilling rigs
which cost between $775 million and $1.55
billion.
Cause an estimated loss of over 500,000
vitally needed jobs.
Deprive the taxpayers of over $3 billion
during 1977-1978 in OCS bonus payments.
... AND FOR WHAT?
Read on
WHITE PAPER
RE: NOIA'S POSITION ON S. 521
GERALD FORD LIBRARY
AMENDMENTS TO THE OUTER CONTINENTAL SHELF LANDS ACT
The National Ocean Industries Association (NOIA) which represents a
large majority of companies involved in the commercial development of the oceans'
resources hereby states its position as being entirely opposed to enactment of S.
521 (Outer Continental Shelf Management Act of 1975) and the House Amendments
thereto (Outer Continental Shelf Land Act Amendments of 1976).
The Association's 289 member companies, whose activities extend to almost
every phase of the offshore and ocean industries from oil and gas operations to
marine transportation and production of fish meal, unanimously denounce both
versions of this proposed legislation because either poses a serious threat to the
economy of the United States. S. 521, if enacted, would ensnarl the offshore oil
industry in red tape of unprecedented scope and establish excessive governmental
controls over an industry which until now has operated safely and efficiently
throughout the entire world.
Careful studies carried out separately by a number of NOIA member companies
indicated that the result of enacting this legislation would be to force
a large number of healthy and vital companies into bankruptcy. These bankruptcies
could include a variety of companies engaged in such activities as offshore drilling,
geophysical exploration, commercial diving, offshore engineering and construction,
energy-oriented shipyards, and catering to mention a few. The economic consequences
would extend to many banks, insurance companies, major shipyards, machine shops,
steel producers and fabricators, and the thousands of companies that supply
ocean-oriented companies. Some economists and consultants estimate that over
500,000 tax-paying employees will be forced to join the ranks of the unemployed as
their jobs are destroyed by S. 521.
The major oil companies, we assume, are the intended targets of this
latest effort by some members of the Congress to further regulate and harass the
-2-
industry. Those companies will undoubtedly be damaged, but the smaller,
independent oil companies may be entirely shut out; and the very existence of
many businesses in the industrial fields mentioned in the above paragraph, will
be so seriously disrupted as to make their survival highly questionable. It is
the small businesses which will be hurt the most.
INFLATIONARY EFFECT ON THE ECONOMY
GERALD FORD LIBRARY
As bad as this legislation is on business, the worst consequence will
be to the average U.S. citizen, who incidentally probably knows almost nothing
about S. 521 and who would have great difficulty in understanding its convoluted
provisions and disastrous economic effects.
Because of the deliberate delays expressly built into S. 521, the potential
petroleum production which will not be available to the American people will
increase rapidly to a rate of 2.1 million barrels per day by 1985. This additional
decline in domestic production will have to be made up by increased imports from
foreign sources. This fact alone will increase America's annual balance of payments
deficit by at least $19 billion with a concomitant serious adverse impact on the
purchasing power of the average wage-earner's salary.
Another startling statistic is that the oil this legislation would not
allow to be produced in the 8-years to the end of 1985 would total 3.1 billion
barrels. The value of that lost production at anticipated prices is $64,500,000,000
(64.5 billion dollars). Since there are no other alternative sources, America
would be forced to obtain its supplemental energy requirement from OPEC. By the
end of 1985, including the additional deficit caused by S. 521, the United States
will be exporting approximately $136 billion per year to pay for imported foreign
crude oil. No one in the Congress we know of has offered any solutions for coping
with such an enormous out-flow of capital and the evergrowing balance of payments
deficits. Several economists will agree that the most probable government action
will be to monetize the deficit, as has been done in the past to the extent of
$90 billion to date. This simply means printing more paper money, thereby
further deflating the value of the dollar (from present values) by the difference
in our material exports and our dollar exports to offset energy imports.
-3-
Yet if such a large volume of exports of machinery, farm products,
technology, and other goods and services is built up and sustained, the economy
will be poorer in real value by the dollars spent overseas for petroleum.
Even this dire observation is made a little more optinistic because it
assumes the major oil companies will be able to obtain the enormous risk capital
and various foreign permits required to operate abroad and their stockholders
will approve the necessary investments under the very unstable economic
environment provided by this legislation. Without question, small independent
oil companies would find it even more difficult to undertake the enormous
risks and would very likely be prevented from participation in foreign ventures.
ONE POSSIBLE RESULT - CREATION OF A GOVERNMENT-OWNED OIL PRODUCING AGENCY
FOR LIBRARY & CERALD
S. 521 creates such serious additional financial risks and operating
roadblocks to offshore energy exploration, development, and production that it
is doubtful a well-managed company would be willing or able to participate in
future OCS operations. If the compani. are thus prevented from meeting future
energy needs, it could bring about a situation, intended or not, causing the
establishment of a government-owned energy producing agency as the only entity
able to operate offshore. In such event, some of the present political forces
in the Congress would attempt to rationalize their activities as being the
only course of action available to meet the need. To this feeble rationalization,
some of the general public may respond, "So, what if we have to get the federal
government to do it, other governments have their own oil producing agencies and
seem to be doing okay."
NOIA would like to refute this damning attitude by the provable statement
that there is absolutely no government-owned oil producing agency established
in the world today which approaches the efficiency and operating expertise of
U.S. oil companies. Domestic companies have been forced to excellence, in both
technology and management, by our highly competitive private enterprise system.
In all cases, nationalized oil agencies' costs of performance are unusually
high and their to-consumer cost is without exception much higher than those same
costs paid by consumers in the U.S. It would be virtually impossible in this
-4-
country to approach even the relatively poor performance of some of the better
government-owned oil agencies abroad, since they operate under much more autocratic
systems and the labor unions are also government-controlled and directed. It is
unlikely American labor unions would be able to function in a U.S. government-owned
agency any better than in the postal system or in the Tennessee Valley Authority.
HOW S. 521 CAUSES DELAYS
BERALD FORD LIBRARY
S. 521, either the Senate or House version, is an unnecessarily long and
involved piece of legislation which is difficult, if not impossible, for the average
person to understand and which NOIA maintains has almost no positive or beneficial
purpose. The only results of its enactment will be to further delay, impede, and
perhaps actually halt development of this nation's much needed offshore energy resources.
At the present time the implementation of the 1953 OCS Lands Act provides
70 procedural steps which must be taken between leasing and production of any
offshore tract which taken together with the actual work usually takes 5 to 7 years
before the oil starts coming ashore. S. 521 (House version) proposes to add 45
new procedural steps on top of these 70 steps which will increase the presently
required time to production by a minimum of 24 months for a total of from 7 to 9 years.
This potential delay has been carefully documented and visualized in a flow
chart which shows the step-by-step additions that will be made to established
procedures by S. 521 (House version). This chart was reprinted for the Congress
and the public in the study prepared by the Congressional Research Service, Library
of Congress, entitled "Effects of Offshore Oil and Natural Gas Development on the
Coastal Zone." (Printed for use of the House Ad Hoc Select Committee on the Outer
Continental Shelf, 94th Congress, 2nd Session, March 1976). This chart clearly shows
the additional two-year delay is unavoidable even under the most expeditious and
error-free transition from the beginning steps to the point of actual production.
This absolute minimum of two-year delay is based on the premise that no civil suits
are entered; there are no State permit denials; and there are no State refusals
to approve the particular lease exploration and/or development program. It also
assumes the Interior Deparmtnet does not cancel or take over the lease as it will
be able to do at any time under the proposed new law.
The enormous additional cost to find, develop, and produce oil from
offshore leases under the prescribed format provided by S. 521 must, of course,
-5-
be added to the product price to be paid by you -- the consumer.
EFFECT ON EMPLOYMENT
FORD
This artificially created slow-down in offshore oil production caused
by enactment of S. 521 will also cause widespread unemployment throughout
GERALD
LIBRARY
the industry and the general economy.
A comprehensive evaluation by NOIA, based on very conservative assumptions,
indicates that offshore exploratory and development drilling will within two
years decrease by at least 40% as a direct result of the additional delays
structured into S. 521. This is a minimum figure and translates into a reduction
of 31 operating offshore exploratory rigs from the present level of 82 rigs
operating in U.S. waters. Since each such rig will normally drill five wells per
year, the reduction of 31 operating rigs means that 155 exploratory wells per
year will not be drilled.
Carrying this extrapolation forward and using the average discovery rate
of 1-in-9 as experienced offshore U.S. during the past five years, approximately
17 discoveries per year will not be made which otherwise would very likely be
made under the present law. Usually two or more delineation wells are drilled
by mobile rigs following a discovery to evaluate and determine reservoir extent.
Therefore, if 17 discoveries are not made, at least an additional 34 evaluation
wells will not be drilled. After evaluation of a discovery, a production
platform is ordered, which is customized to accommodate to the environmental
conditions, such as climate, water depth, and the number of wells needed to
drain the reservoir. Unsually 12 to 14 months are required from the day the
platform is ordered until the installation is complete. After the platform is
installed, a unitized rig is installed on the platform to drill production
wells. So here again, 17 or more platforms will not be installed and a rig-year
of work for each platform, a minimum, will not be required. One may see how
the adverse economic impact escalates rapidly.
Many other phases of offshore development will be affected, including
transportation of people to and from offshore rigs; logistical support;
specialized services such as welders, casing crews, fishing tool experts,
catering crews required to feed and quarter on each rig; drilling rig crew
-6-
requirements; offshore structure and pipeline construction crew; and the list
could go on and on. Considering also the onshore support employment ----- which
is estimated by some oil companies to be 150 onshore jobs for each offshore
job, it may be said that a reduction of 48 rigs (31 exploratory plus 17
development) can cause a loss of more than 25,000 jobs. Enactment of S. 521
will also have a serious, adverse impact on the very large employment of people
involved in the annual production of $1.8 billion (1976 figures) worth of hard
goods manufactured onshore and transported to dockside for use in offshore
operations. Here a reduction of 40% in offshore drilling will produce a loss
of an estimated 288,000 jobs. Since the Chamber of Commerce of the United
States estimates that each primary job supports an additional 2/3rds of a job
GERALD FORD LIBRARY
(1973 figures), and adding the employment generated by the actual production
of oil estimated by the major oil companies to be 1 job for each 44 barrels of
actual production obtained per day, the total loss of jobs which would be caused
by this legislation could be more than 500,000. These figures do not even take into
account the many thousands of jobs in jeopardy because they depend on oil or gas for
continued operation.
At a time when the U.S. desperately needs to create new jobs to cure our
excessive unemployment situation, we can not afford to lose this large number of jobs
because of enacting ill-advised, unnecessary, and destructive legislation such as
S. 521. There is no question that such a loss would affect the total economy in
2 most depressing manner.
EFFECT ON LENDING INSTITUTIONS
Another serious consideration in this discussion is the adverse effect on
banks, insurance companies and other lending institutions. The present
underoccupancy of mobile drilling rigs which has already produced over 50 idle
rigs worldwide, with another 76 under construction (at an average capital
investment of more than $25,000,000 each), would be further aggravated by the
non-use of the additional 48 rigs as indicated by our evaluation. This would
bring the total idle rigs to 98, with still 76 under construction. Without
question, the hugh capital outlay furnished by lending institutions would be
seriously jeopardized.
DOES U.S. NEED S. 521
When S. 521 was first conceived and written, one of its alleged purposes
was to afford the affected coastal States a means of getting more information on
-7-
the onshore impacts of the oil exploration, production, transportation in order
to help prepare the way for onshore facilities necessary to store, refine,
transport, and distribute offshore production and so the States could influence
policy decisions in this field. It was also intended to provide for the fixing
of liabilities for cleanups and damages resulting from oil spills. Both of
these purposes have now been adequately covered by new legislation namely the
Coastal Zone Management Act (recently signed into law) and the Oil Spill
Liability Act (moving through the Congress). The remaining provisions of S. 521
are not traceable to existing problems, or to any bothersome extra legal
facets not presently and adequately covered by regulation or by statute.
GERALD FORD LIBRARY
Another claim of the proponents of this legislation is that the
government is the owner of the property and should receive a larger share of the
revenue resulting from offshore production. In refutation of this claim,
consider the following facts. Since OCS energy production began the total value
of that production has been about $23.2 billion through 1975. Of this total
yield, 86% or $19.95 billion has been paid to the federal government in bonuses,
royalties, and rentals, while only 14% or $3.24 billion has been retained by
industry, from which investments and operating costs have been paid. However,
the industry has not yet even recovered all its investments and costs because
the industry still has a deficit of $9.7 billion as a result of exploration
and development costs. Industry sources project (and hope) that by the time of
total depletion, the companies will obtain an overall rate of return of 7%.
This projected rate of return is far below that generally considered as being
necessary to attract the required capital to continue offshore efforts and is
lower than the rate of return now being obtained from the other segments of oil
industry operations. The inescapable conclusion is that there is no equitable
way to further increase the percentages of the federal government's share since
there simply is no economically feasible way to decrease industry's share
without absolute nationalization.
Under present laws and regulations, complete and exhaustive safety
measures and preventive devices are now in operation to control all known
pollution hazards. In addition, there are penalties so severe as to preclude
any untoward occurrence resulting from lack of serious and prudent efforts of
everyone involved offshore. However, even without these regulations, laws, and
penalties, the industry has a most exemplary record of trouble-free and
-8-
environmentally acceptable operations. With the addition of new controls and
required new technological improvements over the past five years, little more
can be expected from this legislation to further insure ocean environmental
protection and the safeguarding of coastal areas.
Therefore, unquestionably, S. 521 is an unneeded, unworkable, and
unwarranted piece of legislation, which can only be justified by those persons
who are unresponsive to the greater needs of our country. It appears to NOIA
that in attempting to hamper and restrict the so-called oil industry giants,
the proponents of S. 521 have almost missed the in target entirely and have hit the
general public and the other businesses which are directly involved in trying to
meet the nation's urgent energy needs and which have been given no consideration
at all.
CONCLUSION -- NOIA POSITION
GERALD
The National Ocean Industries Association believes that industry and
government now recognize the impossibility of total U.S. energy independence
in the foreseeable future (1990) and, therefore, have been reconciled to the
necessity for some imports of petroleum to supplement our inability to produce
the required energy. However, both government and industry, as well as the man
on the street, know the amount of the imports must be held to the lowest
possible level. In 1970, imports accounted for 20% of consumption at a time
when domestic production was at its peak. The present level is in excess of
40% and estimates are that imports may increase to 54% by 1985. For the Congress
to deliberately increase this deficit production to 64% -- which will occur as
a result of enacting S. 521 -- is illogical to say the least and certainly contrary
to the national interest. Even under the most fortuitous of circumstances, the
standards of living and lifestyle of our people are going to be materially
affected, and to further emphasize the degradation by approving this unnecessary
legislation is unquestionably counterproductive and a serious disservice to the
American people who deserve more from their Congress.
Therefore, NOIA and its members urge every recipient of this position
paper to join with us in resisting the passage of S. 521 -- Amendments to the
Outer Continental Shelf Lands Act -- by the Congress with all the means at our
disposal.
-9-
Should this unfortunate bill be passed, the President must be urged to
veto it in the public interst.
When the President vetoes S. 521, we must insist that the Congress sustain
the veto; and, in the future, consider the broader needs of America while viewing
OCS energy development.
GERALD FORD LIBRAR)
HENRY M. JACKSON, WASH., CHAIRMAN
FRANK CHURCH,SDAHO
PAUL J. FANNIN, ARIZ.
LEE METCALF, MONT.
CLIFFORD P. HANSEN, WYO.
J. BENNETT JOHNSTON, LA.
MARK O. HATFIELD, OREG.
JAMES ABOUREZK, S. DAK.
JAMES A. MC CLURE, IDAHO
FLOYD K HASKELL, COLO.
DEWEY F. BARTLETT, OKLA.
JOHN GLENN, OHIO
United States Senate
RICHARD STONE, FLA.
DALE BUMPERS. ARK.
COMMITTEE ON
GRENVILLE GARSIDE, SPECIAL COUNSEL AND STAFF DIRECTOR
INTERIOR AND INSULAR AFFAIRS
WILLIAM J. VAN NESS, CHIEF COUNSEL
WASHINGTON, D.C. 20510
September 20, 1976
MEMORANDUM
TO: Senators Fannin, Hansen, McClure, and Bartlett
FROM: David P. Stang Ave
RE: O.C.S.
Attached is a tally sheet relevant to the floor vote coming up on the
O.C.S. bill conference report. The "certain" list consists of those Senators
who voted against the O.C.S. on the floor last year plus Senators Johnston,
Long and Hansen who are now against it. The primary targets consist of those
Senators who did not vote on the O.C.S. last year and whose sympathies may
be expected to be with us. Secondary targets are those who voted for the
bill on the floor last year but may be persuaded to switch. The same rule
applies to the tertiary targets, but the likelihood of their switching is
more remote.
Also enclosed is a list of political arguments why vetoing the bill is
good for President Ford.
It is suggested that you Senators may want to divide up the target list
among you for contacts prior to the floor vote on the conference report which
is expected to take place early next week.
In the event that you wish to conduct extensive educational debate in
order to force cloture, I am arranging to have prepared a number of floor
statements.
FORD is LIBRARY GERALD
CC: Secretary Kleppe
Joesph Sherbourne Jenckes, V, Esq.
S. 521 CONFERENCE REPORT
Certain Primary Targets Secondary Targets Tertiary Targets
Bellmon
Bentsen
Johnston
Eastland
Allen*
Nunn*
Long
Stennis
Byrd (Va. ) *
Talmadge*
Bartlett Baker
McClellan *
Percy*
Brock
Curtis
McGee*
Scott (Pa.) *
Buckley
Goldwater
Montoya*
Dole
Scott (Va.)
Beall*
Fannin
Domenici*
Garn
Fong*
Griffin
Pearson*
Hansen
Helms
Hruska
Laxalt
McClure
Stevens
Taft
Thurmond
Tower
Weicker
Young
TOTAL 22
6
9
4
Total Number of Targets 19
NOTE: Asterisk indicates voted for S. 521 on Senate
Floor July 30, 1975
FORD & LIBRARY GERALD s
WHY VETO OF S. 521 IS GOOD FOR PRESIDENT FORD
1. The bill delays OCS development forcing greater dependence on imported oil.
2. East coast oil imports amount to nearly 90% of consumption.
3. The crude and oil products landed on the east coast are transported mainly
by tanker.
4. Tankers account for nearly 35% of marine pollution.
5. Offshore platforms are responsible for less than 2% of marine pollution.
6. Had the President signed the bill, it would have forced greater dependence
on foreign oil and substantially greater marine pollution as a result of
transporting the imported foreign oil in tankers.
7. Increasing oil imports merely plays into the hands of the Arabs who gain
political leverage comensurate with the degree to which the U. S. becomes
dependent on imported oil.
8. Increasing oil imports also adds to the balance of payments burden. As
an example, Iran presently exports oil to the U. S. at a rate of 4 million
dollars a day or 1.5 billion dollars a year. Every day of delay in OCS
production accrues to the economic and political benefit of Iran and the
Arabian states whose shipments of oil to the U.S. are growing at an even
faster rate than Iran's.
9. The present rate of unemployment in New England and other Atlantic coast
states would be aggravated by the enactment of the OCS bill. That bill
would cost jobs for U. S. citizens. Foreign employees produce foreign
oil. U. S. employees produce domestic oil.
10. The OCS bill, if enacted, would actually cost losses of jobs in the Gulf
Coast OCS areas of Louisiana and Texas. The legislation would provoke
delays which would force lay offs of not only oil company employees but
of the hundreds of service companies which are hired to perform all kinds
of services on the Gulf area outer continental shelf.
11. There is nothing in the OCS bill needed to assist in the OCS development
program. The Coastal Zone Management Act amendments provided for federal
aid to impacted coastal states to compensate them for the effects of off-
shore production. That Act was the only legislation needed. Furthermore,
the provisions of the OCS bill would exacerbate rather than facilitate OCS
development.
GERALD FORD LIBRARY
Proposed OCS Lands Act Amendments:
Prescription for disaster
FORD & LIBRARY GERALD
®
ZAPATA
CORPORATION
Reprinted from VIVA, Zapata Corporation employee magazine
1976
Proposed OCS Lands Act Amendments:
Prescription for disaster
The United States Congress is consider-
domestic crude oil production would
The remaining provisions of OCSLAA
had been pursued and plans modified, a
ing passage of a law which would have
decline as much as two million barrels per
are not traceable to any existing prob-
considerable delay would have taken
devastating effects on a far-reaching
day by 1985, and natural gas production
lems, or to any other significant legal mat-
basis. It should concern you, as an em-
would decline as much as one trillion feet
OFFSHORE
place-interrupting both the planning and
ters not presently covered by regulation or
financial stability of the oil companies and
ployee, a taxpayer, and a consumer.
per day, as a result of this law.
law.
their contractors, as well as that of the af-
The bill (Senate S-521 and HR-6218) is
38% decline in offshore drilling rig
The only major claim of the bill's backers
fected coastal communities.
called the Outer Continental Shelf Lands
utilization by 1979. The legislation would
is that the government, as property owner,
Act Amendments (OCSLAA) of 1976. If
cause 38% more drilling rigs to be idle in
should receive a larger share of the money
Lease cancellation.
enacted, it would ensnarl the offshore oil
the U.S. by 1979, in addition to those
resulting from offshore production. Accord-
Also included in the bill are new provi-
industry in red tape of unprecedented
already without work.
ing to the government's own figures, since
sions for cancellation of the lease on a
scope, and would establish governmental
Four years delay added to total devel-
production began on the U.S. Outer Conti-
given acreage at any stage of exploration
control over an industry that until now has
opment cycle. As a result of procedures
nental Shelf in the early 1950s, it has
or development, without providing for ade-
operated responsibly and successfully
in the proposed legislation, an additional
yielded a total production value of $23.2
OCS
quate compensation to the lessee for costs
over the entire world.
four years delay would be necessary in
billion (through 1975). Of this total yield,
or the value of any petroleum discovered.
The bill would waste billions of Ameri-
the cycle-two years delay in the present
86% or $19.95 billion has been paid to the
This provision increases the risk for
can taxpayer and consumer dollars,
bid-lease phase, and two years additional
government in bonuses, royalties or rentals,
OCS lessees, and causes potential bid-
weakening the nation's economy and
delay in the exploration-production phase.
while 14% or $3.24 billion has been retained
OPEC
ders to further discount the value of each
substantially increasing its dependence
This would raise the total elapsed time
by the industry, from which the costs of
ENERGY
lease offered in the future. The provision
on foreign oil. Moreover, the bill poses
necessary from initial paperwork to
capital and operations have been paid.
is also retroactive-applicable to non-
one of the most dangerous precedents
production on a given tract of offshore
All investments and costs from this pro-
FORD
producing leases sold in all years before
yet, setting the stage for continuous,
acreage to as long as 11 years, assuming
duction to date have not been recovered.
the OCSLAA would be enacted. This fea-
monumentally disruptive legal battles and
no serious legal complications took place
The industry has a deficit of $9.7 billion
ture would violate the basic legal principle
Big Brother interference in many sectors
to further delay progress.
from exploration and production costs.
of sanctity of contracts, and introduces a
of private industry.
9% increase in oil imports projected
The industry hopes that, by the time of
MAURICE LEWIS, ZAPATA CORPORATION 1976
dangerous "Russian Roulette" precedent
At this writing, passage of the legislation
for 1985. Experts estimate that the oil im-
total depletion, it can obtain a return of
applicable to all long-term Federal con-
by both houses of Congress appears
ports, which have been projected for 1985
7% profit, which is far below that neces-
part of a number of measures pursued by
in the extraction of OCS petroleum in-
tracts, regardless of industry.
likely. Therefore, it is vital that President
at 55%, would be at least 64% with the
sary to attract the capital needed to con-
Congress in recent years with the inten-
volves several years-including explora-
While it protects a lessee's right to sue
Ford veto the measure, and that Congress
new legislation.
tinue offshore exploration efforts. This
tion of hampering, restricting, curbing or
tion, development, production and trans-
for proper compensation if his lease is
sustain his veto.
$19 billion increase in oil-related bal-
capital is being obtained from other seg-
breaking up the major oil companies.
portation. The present OCS Lands Law,
cancelled, the OCSLAA also allows reim-
ance of payments outflow by 1985. Addi-
ments of industry operations. The obvious
The American oil industry includes
with the National Environmental Policy Act
bursement of only the bonuses and direct
Disaster in the making.
tional purchases of foreign crude would
conclusion of this analysis is that there is
more than 10,000 U.S. oil producers,
(NEPA), provides for an orderly decision-
costs in such cases. Even though the les-
The OCSLAA bill is a highly complicated,
add an extra $19 billion burden to the
no way to further increase the percent-
nearly 100 gasoline marketers, and
making and review process which has
sees might suffer cancellation of the lease
convoluted piece of legislation that is
U.S. balance of payments outflow, making
ages of the government's share since
legions of contractors and suppliers. What
successfully encouraged investment and
for reasons beyond their control, they
difficult for anyone to fully comprehend.
oil-related outflow a total of $140 billion
there is no way to further decrease the
Congress failed to see in the OCSLAA is
allowed for evaluation of onshore impact
would receive nothing for the value of any
Intensive analysis by a number of inde-
in 1985.
industry's share.
that the handful of "majors" will be less
and formulation of long-term federal and
oil and gas discovered.
pendent groups, including economists,
Industry is functioning under present
affected than the many other large and
industry planning.
The bill also forces cancellation of a
industry and governmental experts,
OCSLAA: Intentions and reality.
laws to prevent all known pollution
small businesses directly involved and not
The proposed OCSLAA would separate
lease if the development and production
reveals a number of points which are
This legislation was conceived and origin-
hazards-the measures and preventive
considered.
the exploration part of the sequence from
plan cannot be made consistent with an
among the most significant. They do
ally written with the intention of providing
devices are complete and comprehensive.
Further, such confusion and economic
the subsequent development, production
approved state coastal zone management
not by any means represent all of the
the affected coastal states with a means of
The penalties which accompany these
dislocation will be created by this law-
and transportation phases. It would re-
program. In effect, this gives coastal states
bill's shortcomings.
controlling the onshore impact of oil explor-
laws are so severe that every serious, pru-
which was originally designed to benefit
quire the filing of two separate environ-
a form of veto power over oil and gas de-
Consider the following possible results
ation, production and transportation
dent effort is being made to prevent any
the special interests of the coastal states
mental impact statements instead of the
velopment/production activities in Fed-
of this proposed legislation.
and the onshore facilities necessary to
pollutive occurrence. Even without these
in new petroleum active areas-that these
present one. The second statement is
eral territory.
One-half million jobless. Economists
store, refine, transport and distribute off-
recently instituted laws, the industry has
states would be far better off without the law.
supposed to allow the coastal states time
and consultants estimate that over one-
shore production. It was also intended to
had a strong record of trouble-free opera-
to plan for anticipated onshore impact fol-
Federal on-structure drilling.
half million taxpaying employees of those
provide for the determination of liabilities
tions. With the addition of the new con-
Specific problem areas.
lowing a successful discovery. However,
One provision in the presently proposed
companies involved in some facet of the
for cleanups and damages resulting from
trols and technological improvements over
There are several specific provisions of
the delays it creates have the opposite
OCSLAA calls for "on-structure" drilling
offshore industry could lose their jobs im-
oil spills.
the past five years, there is little more
the Outer Continental Shelf Land Act
effect.
prior to any lease sales. Under this pro-
mediately. This does not take into account
Both of these requirements now have
which can be accomplished by law to
Amendments which are cause for con-
It is quite possible that a company
gram, either the government or private in-
the impact on jobs in other businesses
been adequately covered under the
further ensure protection of the ocean
cern. We will touch briefly on just a few
which made a discovery would not have
dustry would be required to drill one well
and institutions which support companies
Coastal Zone Management Act (signed
environment and coastal areas.
considerations.
its second environmental impact state-
on a given geological structure, at a site
in the industry.
into law), and the Oil Spill Liability Act
ment accepted for some reason, making
designated by the Secretary of Interior,
Two million barrel decline in daily
(pending) which came from other
Target: Big Oil. Victim: Everyone.
Environmental impact.
the future of the project at that point un-
before acreage covering that structure
domestic oil production by 1985. Projected
sources.
From all appearances, this legislation is
Normally, the chain of events necessary
certain. By the time the review procedure
could be leased.
(continued on next page)
Prescription for disaster
continued
A single well is not sufficient to deter-
So what?
Conclusion.
mine either the presence or absence of
The question of a Federal oil-producing
The President of the United States, the
commercial amounts of petroleum on a
agency-whether this agency is created
Secretary of the Interior, the entire off-
given structure. Therefore, that well will
intentionally or is the result of accidental
shore oil industry and numerous trade or-
not provide the government sufficient in-
circumstances unforeseen by our Con-
ganizations have gone on record in their
formation about an area to determine its
gressmen in their present deliberations-
opposition to provisions of the OCSLAA.
true potential. It is unlikely that much ex-
might be rationalized then as being the
We believe that this is an issue of vital
ploration of this type would be done by
only course of action available to meet
significance, which should not be over-
private companies, no matter what size, if
the need.
looked by the American public. We
they have no lease or assurance that they
Some of the public might respond to
believe that the Outer Continental Shelf
will be permitted to develop any resources
this rationalization-So what? Other gov-
Lands Act Amendments cannot be com-
they discover.
ernments have their own oil-producing
promised in any way which will make
In the Senate version of the bill, taxpay-
agencies."
them acceptable as being in the national
ers dollars would fund projects by a num-
These foreign government oil agencies
interest.
ber of companies, under the control of the
were established because no efficient
In summary, we feel that the enactment
Federal government, to analyze potential
private petroleum exploration and pro-
of this legislation would:
exploration areas. Using the data and
duction organizations existed in those
delay exploration, development and
findings of these companies, the govern-
countries. Further, no private capital
production of domestic energy resources.
ment would subsequently dictate the sites
was available there to take a risk on the
increase imports of foreign petroleum
and timing of drilling on any leases, even
profitable establishment of such firms.
with adverse effects on America's position
though these leases would be privately
There is a wealth of data available
as a world leader.
held.
which shows that there is no government-
disrupt American private enterprise
owned oil agency in the world today
development of natural resources.
The specter of Federal oil.
which approaches the efficiency and
overwhelmingly increase the stifling
The more the provisions of the OCSLAA
operating sophistication of U.S. oil
burdens of regulatory excess.
are investigated and analyzed, the more
companies. In all cases, nationalized oil
America's energy policy, with the re-
observers reach a common conclusion: If
agencies' cost performances are unusually
lated economic and foreign policies, is
this law is enacted, and upheld by the Su-
high, and the cost of their finished pro-
one of the most important keys to our fu-
preme Court as constitutional, it will go a
ducts to the consumer is without exception
ture. It needs to be carefully made and
long way toward the creation of a govern-
much higher than the costs paid by U.S.
consistently applied to reach long-term
ment-owned oil company, perhaps even-
consumers.
objectives. Above all, this policy should
tually with sole proprietorship over the
Tough competition under the American
not be undermined by ill-conceived com-
natural resources offshore America.
private enterprise system has forced domes-
promises made for political expediency in
In our opinion, this will not be a noble
tic oil companies to develop high quality tech-
an election year.
experiment. Because of the way in which
nology and management, in order to survive.
government must operate, it will be far
History shows irrefutably that no govern-
What you can do.
less efficient, and far more expensive for
ment oil-producing agency could approach
We urge you to express yourself on this
the government to conduct these opera-
the performance of America's private oil
vital issue. Write or wire President Ford,
tions than for private industry. Further, it
companies.
and urge him to veto the bill. Write or wire
will cost the American consumer more
your Senator and/or Congressman and
money for the end product.
Our present system.
urge him or her to sustain the President's
This is contrary to the free enterprise
The present system of offshore leasing
veto, or to vote against the bill if another
system which has evolved over the past
and development under the 1953 OCS
opportunity arises.
200 years. The American taxpayer will be
Lands Act has been in successful opera-
forced to assume the enormous financial
tion for 23 years. It has been upheld nu-
If you have any questions, would like fur-
risk of the exploratory process now being
merous times by Federal courts. While
ther information or reprints of this article,
borne by private industry, without the ex-
cumbersome, it is supported by govern-
please write:
pertise and technological resources which
ment and industry leaders, who accept its
Corporate Relations Department
American oil companies have used to find
design. It affords strong environmental
Zapata Corporation
and develop most of the Free World's pe-
controls and some flexibility, and provides
Zapata Tower, P.O.Box 4240
troleum reserves.
a fair return for American taxpayers.
Houston, Texas 77001
O.C.S.
AtlanticRichfieldCompany
515 South Flower Street
Mailing Address: Box 2679 - T.A.
Los Angeles, California 90051
Telephone 213 486 1742
Louis F. Davis
Vice Chairman of the Board
September 9, 1976
The Honorable William T. Coleman
Secretary of Transportation
Department of Transportation
400 Seventh Street, N.W.
FIL,
Washington, D. C. 20590
GERALD FORD LIBRARY
Dear Secretary Coleman:
I have followed the progress of the Outer Continental Shelf
Lands Act Amendments of 1976 (S. 521/H.R. 6218) with a great
deal of interest and concern. My Company has submitted
comments to both the Senate and House Committees which were
considering these bills during the course of their develop-
ment. Several of our corporate officers, including myself,
and other Company representatives, have made repeated visits
to those Members of Congress and their staffs instrumental
in fashioning this legislation to provide information on the
complexities of the issues addressed, the problems raised by
the provisions, and the resulting impact upon the Nation. I
am convinced that enactment of this legislation is contrary
to the public interest, and I urge your support of a Presi-
dential veto of this Act in the event of final Congressional
approval.
The Federal Outer Continental Shelf lands are among the last
major frontier areas remaining under United States jurisdiction
which might contain substantial accumulations of petroleum.
Given the Nation's need for an increased domestic oil supply,
it is imperative that this national resource be developed as
rapidly as economically feasible in a manner compatible with
protection of the environment. However, many provisions
contained in the OCS Lands Act Amendments of 1976 will have
serious negative impacts, delaying development of the oil
and gas resources, thus increasing dependence on foreign
supply, reducing the economic benefit derived by the public,
placing serious strains on the U.S. balance of payments, and
providing mechanisms which could lead to the formation of a
Federal Oil and Gas Company with an inevitable reduction in
competition, causing further reduction in discoveries of oil
and gas.
Compared with the current procedures of the Department of
the Interior, we estimate that the OCS Lands Act Amendments
of 1976 would add at least an additional two years to the time
required for OCS development, bringing the total to about seven
years for a typical new OCS area. Enclosed is an API-prepared
"flow chart" with the steps involved, and the time required, in
bringing OCS oil to production with the additional steps mandated
by the House version of S. 521 highlighted.
Atlantic Richfield Company will, of course, maintain its commit-
ment to OCS development whether or not this legislation is enacted.
However, prudent business practices dictate that the additional
delays and attendant expenses associated with compliance be
reflected in our bidding and in the results of our efforts. We
expect the balance of the industry to be similarly affected.
Our analysis of the impact of enactment of S. 521/H.R. 6218 on
Atlantic Richfield Company's OCS program reveals that the delays
imposed by the legislation would significantly affect the results
of our program compared with the expected results if conducted
under current procedures of the Department of the Interior. The
provisions of this legislation would cause some marginal pros-
pects to become uneconomic for leasing and exploration by delay-
ing the time when income could be expected following leasing and
exploration expenditures. In other cases, leasing activities,
reserve discoveries, and production would simply be deferred to a
later period. Assuming an additional one-year delay of lease
sales and one-year delay between exploration and development, our
estimate of the combined impact on Atlantic Richfield Company's
OCS program and its results during the crucial ten-year period,
1977-1986, would be as follows:
1.
Reduce the number of OCS tracts purchased by almost
30%.
GERALD FORD CIBRAPT
2.
Reduce the total bonus we would expect to pay in OCS lease
sales by at least 30% due to fewer sales and reduction in
value caused by delay. Further reductions in bonus could be
anticipated as the Secretary of the Interior employs the
various alternative leasing systems contained in the legislation.
3.
Reduce reserves that we expect to find by 1986 on tracts
purchased in 1977-86 lease sales on the order of 25%.
4.
Reduce the expected 1986 production rates from tracts
purchased in the 1977-86 OCS lease sales by 55% to 60%.
Since a large portion of the Nation's future new supply of oil
and gas is expected to come from the Outer Continental Shelf
lands, decreased results, such as Atlantic Richfield Company
anticipates, have serious implications for the achievement of the
Nation's goal of an acceptable level of domestic self-sufficiency
in energy. Clearly, as we fail to achieve this goal, increased
imports of foreign oil will be required with the attendant undesir-
able balance of payments and national security implications.
It appears that a prevailing idea in Congress that the public is
not receiving its fair share of OCS revenues has led to provisions
in the legislation which would require on-structure drilling and
alternate bidding systems. Careful analysis indicates this is
not a valid concern. Since the beginning of federal leasing of
OCS lands in 1953, the petroleum industry has expended some $33
billion ($18 billion in bonuses and $15 billion for exploration
and development) while gross revenues from OCS production have
reached only about $19 billion. Despite being in the red after
23 years of operation in the OCS, the industry obviously expects
eventually to recover cost and show a profit. Even so, on a
discounted cash-flow basis, the public (government) will have
received some 80% of the revenues. There is an economic limit
beyond which industry cannot pass if it is to remain healthy. A
further increase in the government's share is precariously close
to that point.
Atlantic Richfield Company stands ready to assist you in any way
on this important issue. Please do not hesitate to call if we
can be of service.
Sincerely,
Jouist Danie
Louis F. Davis
Attachment
BERALD FORD LIBRARY
9-8-76
Political Misconceptions Concerning the Outer Continental Shelf (OCS)
Lands Act Amendments - S. 521
/
Bill
#1 - FAIR MARKET VALUE
Taxpayers do not get a fair market value for OCS leases acquired by
the oil companies ! FALSE!!
The latest OCS statistics published by the U. S. Geological
Survey (1976) show that from 1953 through 1975 the total revenue to
the government from bonuses, rents and royalties on OCS leases - was
$19.9 billion. The total value of production has been $23.2 billion.
This is 86% to government and 14% to industry not including an es-
timated $10 billion cost to the industry for exploration and develop-
ment.
Instead of a ripoff by industry, it is a jackpot to the
Federal Treasury in dollars and to the American consumer in helping
satisfy their energy demands or needs. More (over 80%) of the money
for the Land and Water Conservation Fund comes from OCS revenues.
From this Fund all states receive grants for recreation and con-
servation projects. The remainder of government revenue goes to
miscellaneous receipts of the Treasury Department which has the
effect of reducing an equivalent amount of income taxes.
It is a fair market value because any qualified bidder
with the men, materials and money can offer, in a sealed bid, what
he believes a lease to be worth. Although there have been some
notable differences between government and industry estimates of
the value of a lease, they have averaged out about the same. The
government rejects any bids which are below the government estimate
of value. Competition creates the fair market value.
FORD if LIBRARY GERRAL
9-8-76
Political Misconceptions Concerning the Outer Continental Shelf (OCS)
Lands Act Amendments - S. 521
#2 - ON-STRUCTURE DRILLING
Why shouldn't there be on-structure drilling prior to a lease sale
so the government will know the quantity of the oil and gas avail-
able to determine its value?
Industry has drilled over 16,000 wells in the Gulf of
Mexico during the past quarter century and still does not know for
certain how much oil and gas is there. Some people mistakenly
believe that drilling a small number of test holes "on-structure"
in each frontier area accurately predict the amount of recoverable
oil and gas. This politically-oriented "dip-stick syndrome" does
not apply to the real world of geology where there are hundreds
if not thousands of structures or traps where oil and gas may or
may not be found.
Look at a map of producing oil fields onshore or offshore
anywhere in the world. Are many of the fields large areas subject
to a few test wells? NO!! In oil and gas producing regions, the
fields are small, frequently disconnected dots or splotches more
or less randomly scattered on a map. Current legislation is ask-
ing the Department of Interior to play "pin the drill rig on the
polka dot."
Statistically, for U. S. offshore exploratory wells, only
one well in about five becomes an oil or gas well and the cost is
in the millions for each frontier well. Even though the odds are
against it, suppose oil and gas is found before there is a lease
sale. This would imply to the public that other nearby structures
contain similar quantities. Experience has shown that only a
casual relationship may exist between the oil and gas found in one
FORD & 9ERALD LIBRARY
- 2 -
structure compared to another nearby. Many realistic bids on
nearby structures (or the entire frontier area) would be con-
sidered too low and commercial development would be prevented.
On the other hand, distorted high bids based on the discovery
would eliminate smaller companies from bidding. The public
would not be protected and competition would be diminished.
Suppose that no oil and gas are present in a frontier
area. The pre-lease exploratory drillers would not know this and
the temptation to continue drilling wells looking for a discovery
would be great. The more dry holes drilled, the lower the bids
will be. The U. S. Treasury and the taxpayer lose. It is a
loss of valuable time and money to the taxpayer and the consumer
who are one and the same.
For one of many examples, there were 32 dry holes drilled
in the North Sea. All governments and their contractors had given
up except one private American company who made the first dis-
covery. They didn't have to drill "one more hole", they wanted
to. The rest is history.
The more normal situation is that, after leasing, several
exploratory wells are drilled "on-structure" before there is a
discovery. If, prior to a lease sale, several exploratory holes
were drilled on-structure with no discovery, then at the lease
sale the bids would obviously be very low.
By this legislation, the Department of Interior is placed
in a compromising situation. They can't win and the taxpayer loses.
Legislation now being considered is trying to force geology and
commerce to fit within legislated boundaries which will diminish
rather than enhance productivity.
GERALD FORD LIBRARI
9-9-76
Political Misconceptions Concerning the Outer Continental Shelf (OCS)
Lands Act Amendments - S. 521
#3 - FEDERAL EXPLORATION
Federal exploration is the best way to really determine the amount
of oil and gas reserves! FALSE!!
The American private enterprise oil and gas industry has
always been the undisputed leader in the world. This has been due
primarily to competitive incentives and motivation by reward. Before
the OPEC cartel controlled foreign crude prices, the result was
abundant low cost energy supplies and high economic efficiency.
Now the suggestion is made that we discard incentives and
motivation. Now that oil and gas are harder and more expensive to
find, we should plod along under bureaucratic guidance. A little
federal exploration will be as bad as a lot of it.
By its nature, federal exploration or exploration by con-
tract under federal control will:
Cause lengthy delays
Increase costs
Probably lower bids at lease sales
Provide only sketchy information at best
Lack competitive diversity
Be exposed to political pressures
Expand governmental functions
Create conflict of interest within one agency
to explore for oil and regulate operations.
With these factors going against us, how is that going to
help the situation?
FORD & LIBRARY GERALD
9-7-76
Political Misconceptions Concerning the Outer Continental Shelf (OCS)
Lands Act Amendments - S. 521
#4 - WHAT HAPPENS TO ALL THAT OCS LEASE SALE MONEY?
The Mid-Atlantic Oil and Gas Lease Sale (#40) recently
caused headlines such as "Offshore Oil Bids Top $1 Billion." From
1953 through 1975, government has received $19.9 billion from lease
sale bonuses, lease rents and production royalties. Add to this the
$2 billion in lease sales during 1976 and this is a tidy sum. Where
does it come from and where does it go?
Usually, part of the money an oil company (or other qualified
bidder) bids is from retained earnings specifically for this purpose
and part is borrowed from banks or other lenders.
Each bidder must include 20% of the amount bid and the re-
mainder is paid after the lease is awarded. The money with rejected
bids is returned to the bidders.
According to the OCS Act of 1953, all bonuses, rents and
royalties paid to the U.S. government go to the Treasury Department
and are credited to miscellaneous receipts. This money pays for
government programs along with the general tax dollar unless specific
receipts are for specific purposes.
One specific purpose is the Land and Water Conservation Fund
which has received over $2 billion since 1965. Part of this Fund has
been raised from entrance and user fees for federal recreational
projects, surplus property sales and a motorboat fuels tax. If
GERALD FORD LIBRARY
revenues from these sources are less than a $300 million ceiling,
the remainder is contributed from the OCS receipts. More than 80%
of the yearly $300 million now comes from OCS revenues to acquire
and develop recreational facilities in all 50 states. OCS money has
contributed $1.4 billion to the Fund. The Bureau of Outdoor Recreation
maintains records of money granted and recreational projects developed
or in progress for each state.
9-7-76
Political Misconception Concerning the Outer Continental Shelf (OCS)
Lands Act Amendments - S. 521
#5 - LEGISLATED SEPARATION OF EXPLORATION AND DEVELOPMENT
The states do not have enough time nor information to plan
for OCS development unless there is a legislated delay between explor-
ation and development! FALSE!
The coastal states serve on the Department of Interior
OCS Advisory Board and the regional subdivisions.
The coastal states serve on the Department of Interior
OCS Environmental Studies Advisory Committee.
The OCS leasing schedule is published years before the
sale with adequate time for public hearing.
Under the Coastal Zone Management Act of 1972 and the
1976 amendments, the coastal states receive planning
money and grants and loans for "adverse impacts."
The production and development plan must be certified
to be consistent with the state plan.
There is a natural delay of two to four years to custom
build platforms and drill production wells.
The states have access to non-proprietary geological
and geophysical data for adequate onshore planning.
A legislated delay between exploration and production
serves no useful purpose.
GERALD LIBRARY FORD
9-7-76
OUTER CONTINENTAL SHELF (OCS) LEGISLATION - AN OVERVIEW
Situation:
Domestic production of oil has been decreasing each year
since 1970.
Consumption has increased since 1974.
U.S. economy is dependent on oil and gas for over 75% of
our energy.
Imports are rapidly increasing - over 40% of consumption.
Unknown quantities of domestic oil and gas resources are
available from the OCS.
GERALD FORD LIBRARY
Problem:
How can we expedite OCS oil and gas exploration, development
and production with due regard to the coastal states and the en-
vironment?
Legislation Passed:
Coastal Zone Management Act Amendments of 1976 (PL 94-370)
provides $1.2 billion in loans and grants to coastal states for
energy planning and impacts. Also provides that OCS exploration,
development and production plans be consistent with state plans
giving the states a voice in OCS development.
Legislation Proposed:
Comprehensive Oil Pollution Liability and Compensation Act of
1976 (H.R. 14862) is before the Rules Committee. This bill establishes
a fund for compensation from oil spill damage and the cost of the
clean up.
-2-
Legislation in Conference:
The Outer Continental Shelf Lands Act Amendments of 1976 (S. 521)
amends the OCS Act of 1953. Contrary to its findings and purposes,
it does not expedite the production of oil and gas but rather signif-
icantly delays the process.
Effects of S. 521 if passed:
Opens door to federal exploration.
Require new 5-year leasing program.
Require new regulations.
Fragment federal administrative responsibilities.
Mandatory on-structure drilling before leasing.
Congressional review of rules and regulations.
Encourage nuisance law suits.
Require additional review by states.
Does nothing to decrease dependency of foreign imports.
GERALD FORD LIBRARA
JOHN J. RHODES
1ST DISTRICT. ARIZONA
Office of the Minority Leader
H-232, THE CAPITOL
WASHINGTON OFFICE:
WASHINGTON, D.C. 20515
2310 RAYBURN HOUSE OFFICE BUILDING
United States House of Representatibes
WASHINGTON, D.C. 20515
JOHN J. WILLIAMS
Mashington, D.C. 20515
DENNIS J. TAYLOR
ALMA A. ALKIRE
J. BRIAN SMITH
RICHARD ROBERTS
June 9, 1976
CLARA POSEY
-
DISTRICT OFFICE:
6040 FEDERAL BUILDING
PHOENIX, ARIZONA 85025
IN REPLY
ROBERT J. SCANLAN
REFER TO:
Dear Republican Colleague:
Attached for your information is a copy
of a letter from Secretary of the Interior Kleppe
expressing his concern over provisions of H.R. 6218,
the Outer Continental Shelf Lands Act. As you
will note, he urges Members to oppose the bill.
Sincerely,
John Join J. Phades Rhodes, M. C.
GERALD LIBRARY GERALD R. FORD
Minority Leader
Attachment
R
THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS
OF
INTERIOR
United States Department of the Interior
OFFICE OF THE SECRETARY
March
OF
WASHINGTON, D.C. 20240
JUN 8 1976
Dear Mr. Rhodes:
The House this week will be considering H.R. 6218, amendments to the
Outer Continental Shelf Lands Act. I would like to call to your
attention a few of the features of this bill which concern me deeply,
and which I feel make it unacceptable.
Despite the contrary claims of the bill's supporters, in fact these
amendments would drastically slow up the development of our best
remaining domestic energy supply, Outer Continental Shelf (OCS) oil
and gas. The main delaying features are these:
1
citizen suit provisions which broaden the chance for
nuisance litigation;
3
forcing use of new, untested bidding systems on large acreages;
oz
reducing investment incentives by threatening lease cancella-
tion under vague, one-sided criteria;
4
handicapped firms doing exploration by requiring revelation
of their proprietary information to States, where its
confidentiality could not be assured;
FORD & LIBRARY GERALD
5
giving Governors a veto over leasing wherever national defense
or overriding national interest is not involved;
G
confusing the assignment of regulatory responsibility by giving
the same duties to as many as three agencies at the same time;
and
1
requiring review of each lease, before it can be issued, by both
the Attorney General and the FTC.
8
Delay, however, is only part of what this bill would mean. It would also
grant rights to States over heretofore Federal lands, by making the State
a "joint lessor" in the first three miles of Federal waters.
AMERICAN REVOLUTION WENTENMAY
1776-1976
Perhaps most serious of all, by requiring issuance of permits for
pre-lease exploratory drilling, it opens the door to Federal takeover
of
of exploration on the OCS.
There are many other objections to this bill. I urge you to hold in
mind that the OCS program is serving us well under present law. There
is nothing in H.R. 6218 which is necessary to sound future leasing policy,
and there is much in the bill which would be harmful.
The Administration is opposed to passage of H.R. 6218 and I hope you
will oppose it as well.
Sincerely yours,
Thomas S. Hype
Secretary of the Interior
Honorable John J. Rhodes
U.S. House of Representatives
Washington, D.C. 20515
FORD & LIBRARY GERALD